Question

A loan of $20,000 was borrowed from a bank at 15% per annum. Calculate the interest on the loan at the end of the first year.

a) $2,500
b) $3,000
c) $3,500
d) $4,000

Answer 1

The interest on a loan of $20,000 at 15% per annum at the end of the first year is calculated using the formula I = PRT. Plugging in the numbers, the interest comes out to be $3,000, which is option b).

Step-by-step explanation:

To calculate the interest on a loan at the end of the first year using a simple interest formula, you use the formula I = PRT, where I is the interest, P is the principal amount ($20,000 in this case), R is the annual interest rate (15% or 0.15), and T is the time in years (1 year).

So, for a $20,000 loan at a 15% per annum interest rate, the calculation for the first year's interest would be:

I = $20,000 × 0.15 × 1 = $3,000

Hence, the interest on the loan at the end of the first year would be $3,000, which corresponds to option b).